The Exchanges

Q Speaking of being a valuable board member there, and thank you so much for that advice, what do you think it takes to be a great manager of boards from the perspective of the entrepreneur?

A It's interesting when you think, when you mention it that way, I guess Boy, that seems like a inefficient use of a CEO's time is having to manage the board, but I do appreciate that that is something that CEOs think about. Look, to me, it's pretty simple. Keep the board informed with up-to-date data, and then your discussion should focus on strategic questions, or maybe it's an operational problem. But you don't want to spend a board going through like, okay, here's the quarterly results. Let's go through 35 pages of the financials. It's, okay, we sent you the info. Let's talk about the three things that are most important. The way I think about it is don't report, engage. If I was a CEO, that's what I would focus on.

AI assessment note: “Keep the board informed with up-to-date data, and then your discussion should focus on strategic questions”

Q And then let's finish with, what's the most recent publicly announced investment, and why did you say yes?

A So we announced last week that we led the most recent round in Peloton, the connected fitness company. Why did we say yes? Look, they are changing the concept of in-home fitness. It is the full integration in a wonderful consumer experience of hardware, software, and media, and they are truly curating a, you know, a, a more personalized experience, and I think the trends for health and wellness certainly as the population ages and people wanting to stay fit and stay connected, I think it plays all of those trends, and I think the other thing is, if you look at the core of what we do at TCV, we back founders. Talked about a bunch of founder CEOs today. Nobody loves a company or loves a product like a founder, and they're remarkably passionate about it, and John Foley from Peloton is that in spades.

AI assessment note: “we announced last week that we led the most recent round in Peloton”

Q We spoke about kind of the trend of globalization there. I would love to discuss another very prominent trend that a lot of people suggest we've seen in the market being the extended period of privatization. I'm interested because there's a lack of liquidity potentially in this venture cycle. So how do you think about this lack of liquidity for this venture cycle?

A Well, for us, it's an opportunity. So if you think about the typical TCV investment, many of these companies actually don't need to raise money. They want to raise money for kind of one of three things. One is they want to, you know, it's a classic growth equity investment. They want to accelerate spend. Usually it's in product and technology or sales and marketing. We can provide that capital. Sometimes there's a creative or strategic M&A. There are things that can fundamentally change industry through business combinations. And sometimes you need capital to support that. We come in there. The last one is business is going great, but you may have a difference of time period or liquidity desires from shareholders. And this is certainly something that you see when you have an extended path to liquidity for some of these private companies. And in many cases, we'll come in, put some primary capital into a company, but many times provide either full or partial liquidity to existing investors and sometimes even executives and management. For us, we look at that as an opportunity as opposed to a challenge.

AI assessment note: “Well, for us, it's an opportunity.”

Q interview today into three elements, and discuss the world of venture and its inherent trends, the world of operations, and then finally learnings on being a great board member. But starting on venture, we mentioned boom and bust cycles that you've experienced I'm intrigued. If we kind of dig deeper into the venture ecosystem itself, what have been the core foundational transformations that you've seen over the last 23 years?

A You know, I think the biggest one is the business is far more global than when I got into the business, and if you look in other geographies, what I would say is you have more experienced executives, what I like to call the practical entrepreneur. It wasn't 15 plus years ago If you were investing in, you know, a smaller market in the US or internationally, a lot of times you would pull an executive out of a large company, a Deutsche Telekom, a British Telekom. Today, in all markets, you have executives and entrepreneurs that have done the growth thing a few times. So I think the business generally is more global. You know, there's still a massive appetite for risk, which I think is a real positive.

AI assessment note: “the biggest one is the business is far more global”

Q I love that long-term thinking. You did mention the elements of valuations there. Again, I have to quote Peter Fenton, who said that no good deal is too expensive in hindsight. I'm intrigued. That's obviously from maybe a slightly earlier stage perspective. What have been some of your big learnings on price and how you view valuation sensitivity?

A By the way, at some level, Peter is exactly right. It's a little less relevant for us just because of the stage that we come in at. But again, valuation, it's an art, not a science. And I think for us, if you believe that a business can compound at a high rate for many years, and I think, you know, for the most part, I think Peter is exactly right. The issue is, There's many companies that you may invest in that think they can grow 50% a year for the next handful of years, and then you go 50, 40, 3020, which are still not bad, but you end up at a much different place than if you compounded at a higher rate. So to me, getting that durability of the value proposition, and whether that's competitive modes, whether that's management execution, those are the important things to get right. But if you get those right, I do agree, valuation in hindsight can be a little less relevant.

AI assessment note: “valuation, it's an art, not a science.”

Q I mean, the final trend that I do want to touch on is the element of mega funds. One trend that no one can deny is that with the likes of SoftBank, Sequoia, GC, Lightspeed, all announcing billion dollar funds in the last year. What do you make of this huge influx of capital into the ecosystem, Woody, from a macro?

A The first thing I would say is if you look at the size of the global technology pie, it's bigger than ever before. You know, look at the top 10 highest market cap public companies today. You know, Apple's over a trillion dollars. I think five years ago was probably worth four hundred billion dollars. Obviously, that's pretty significant then, but the size of the prize is bigger than it's ever been before, so that certainly justifies the increase in capital being deployed in the, you know, in the sector, and there have been some funds that are deciding to take more of that opportunity and write larger and larger checks. It's always more challenging to find places for larger and larger checks. There's just fewer opportunities that are out there, but I definitely think that the market opportunity is there for mega funds, for reasonable size funds, even for just big funds.

AI assessment note: “size of the prize is bigger than it's ever been before, so that certainly justifies”

Q interview today into three elements, and discuss the world of venture and its inherent trends, the world of operations, and then finally learnings on being a great board member. But starting on venture, we mentioned boom and bust cycles that you've experienced I'm intrigued. If we kind of dig deeper into the venture ecosystem itself, what have been the core foundational transformations that you've seen over the last 23 years?

A You know, I think the biggest one is the business is far more global than when I got into the business, and if you look in other geographies, what I would say is you have more experienced executives, what I like to call the practical entrepreneur. It wasn't 15 plus years ago If you were investing in, you know, a smaller market in the US or internationally, a lot of times you would pull an executive out of a large company, a Deutsche Telekom, a British Telekom. Today, in all markets, you have executives and entrepreneurs that have done the growth thing a few times. So I think the business generally is more global. You know, there's still a massive appetite for risk, which I think is a real positive.

AI assessment note: “I think the biggest one is the business is far more global”

Q I mean, the final trend that I do want to touch on is the element of mega funds. One trend that no one can deny is that with the likes of SoftBank, Sequoia, GC, Lightspeed, all announcing billion dollar funds in the last year. What do you make of this huge influx of capital into the ecosystem, Woody, from a macro?

A The first thing I would say is if you look at the size of the global technology pie, it's bigger than ever before. You know, look at the top 10 highest market cap public companies today. You know, Apple's over a trillion dollars. I think five years ago was probably worth four hundred billion dollars. Obviously, that's pretty significant then, but the size of the prize is bigger than it's ever been before, so that certainly justifies the increase in capital being deployed in the, you know, in the sector, and there have been some funds that are deciding to take more of that opportunity and write larger and larger checks. It's always more challenging to find places for larger and larger checks. There's just fewer opportunities that are out there, but I definitely think that the market opportunity is there for mega funds, for reasonable size funds, even for just big funds.

AI assessment note: “so that certainly justifies the increase in capital being deployed in the, you know, in the sector”

Q the point that you intersect, often kind of slightly later stages than the very early kind of foundations of finding product market fit. How does one look to really actively add value at the stage that you do? I spoke to Shaq, and he talked about the immense value that you've provided to Spotify. How do you look to add value at this stage and with this very global mindset?

A You know, everybody talks about pattern recognition, and for the early stage guys, pattern recognition is about nailing product market fit. It's about putting together those early stage teams that can really grok together and take nothing and create something. You know, on the growth side, we just do that same thing, but we do it at a later scale. A startup team is not necessarily the team that's going to take you to billions of dollars of revenue. A startup has an initial market that you go after. Maybe it's geographical. As you scale, you have to be global. So one of the benefits that we have is after 23 years of investing where we've made over 200 portfolio company investments, we've seen a lot. Some companies have done really well. Others have struggled. And for us, what we're trying to help companies do is make better decisions faster.

AI assessment note: “what we're trying to help companies do is make better decisions faster.”

Q We spoke about kind of the trend of globalization there. I would love to discuss another very prominent trend that a lot of people suggest we've seen in the market being the extended period of privatization. I'm interested because there's a lack of liquidity potentially in this venture cycle. So how do you think about this lack of liquidity for this venture cycle?

A Well, for us, it's an opportunity. So if you think about the typical TCV investment, many of these companies actually don't need to raise money. They want to raise money for kind of one of three things. One is they want to, you know, it's a classic growth equity investment. They want to accelerate spend. Usually it's in product and technology or sales and marketing. We can provide that capital. Sometimes there's a creative or strategic M&A. There are things that can fundamentally change industry through business combinations. And sometimes you need capital to support that. We come in there. The last one is business is going great, but you may have a difference of time period or liquidity desires from shareholders. And this is certainly something that you see when you have an extended path to liquidity for some of these private companies. And in many cases, we'll come in, put some primary capital into a company, but many times provide either full or partial liquidity to existing investors and sometimes even executives and management. For us, we look at that as an opportunity as opposed to a challenge.

AI assessment note: “Well, for us, it's an opportunity.”

Q Have you personally experienced this kind of extended hold period with the investing that you've done over the last few years, given the kind of macro prevailing wins?

A You know, for us, the extended hold period is typically by design, so the C in TCV is crossover, and what that means is just because a company goes public doesn't mean that we're going to rush to the door and look for liquidity. There's a lot that's been written and spoken about Many early stage venture firms and certainly the seed stage venture firms that will look for liquidity because their job is done by the time that, you know, they get to, you know, the public markets. And in many cases, that's exactly true with us. A lot of times we will underwrite an investment understanding that maybe half or more of the hold period could be as a public company. And as such, as long as the things that we got excited about with a company growth position, et cetera, are still in effect, We will hold, you know, most of our public positions or many of our public positions for a long period of time.

AI assessment note: “for us, the extended hold period is typically by design”

Q Can I ask, when it goes public, it's the first time in a company's lifetime when, kind of, for the investor where you have the opportunity to sell, and it's your decision to sell. What does that kind of decision-making framework look like for you when determining sell versus hold? How does that look?

A Well, first of all, I think in this market, that used to be the correct statement. I think now with all of the secondary liquidity options that are out there, if you want to sell as a private company, even if The company doesn't want to sell, but you want to sell your shares. I think there's adequate liquidity sources, but you're right. Most of the liquidity opportunities, if you don't sell the entire business are when, when a company goes public. And for us, you know, it's effectively re-underwriting an investment. What are the things that we like? You know, going back to the point, we like big markets. The question is, does the combination of market moats, so what's the competitive differentiation and how durable are your moats, And how do you feel about management and their execution? If you're excited about those three things, then why would you sell just because a company goes public? Now, there's always the question of valuation, and sometimes valuation may price in all of that goodness, but if you have a long-term perspective, and I usually think that the market only focuses on kind of a little more near-term, maybe they look a year ahead, but if you're sitting here today, you're not, what's a company going to do in Thinking more about what the numbers could be in 2022 1021. And if you have that long-term perspective, a lot of times you come to hold periods that others m…

AI assessment note: “it's effectively re-underwriting an investment... market moats... management and their execution”

Q I love that long-term thinking. You did mention the elements of valuations there. Again, I have to quote Peter Fenton, who said that no good deal is too expensive in hindsight. I'm intrigued. That's obviously from maybe a slightly earlier stage perspective. What have been some of your big learnings on price and how you view valuation sensitivity?

A By the way, at some level, Peter is exactly right. It's a little less relevant for us just because of the stage that we come in at. But again, valuation, it's an art, not a science. And I think for us, if you believe that a business can compound at a high rate for many years, and I think, you know, for the most part, I think Peter is exactly right. The issue is, There's many companies that you may invest in that think they can grow 50% a year for the next handful of years, and then you go 50, 40, 3020, which are still not bad, but you end up at a much different place than if you compounded at a higher rate. So to me, getting that durability of the value proposition, and whether that's competitive modes, whether that's management execution, those are the important things to get right. But if you get those right, I do agree, valuation in hindsight can be a little less relevant.

AI assessment note: “getting that durability of the value proposition... those are the important things to get right”

Q An incredible portfolio that you touched upon there. In some cases, though, not always does the CEO make the right decision. Sometimes mistakes can be made. Again, I'm intrigued from your experiences seeing the scaling of some of the fastest-growing companies What are the mistakes that CEOs tend to make when scaling into hyper growth? Are there some commonalities?

A Absolutely. And by the way, it's not just CEOs. I think the biggest mistake, what I've learned over my career here is I think the biggest mistake that boards and CEOs can make is waiting too long sometimes to make changes. A lot of times if you're having a conversation about something that's not working, you already know what the answer is. And again, it's human nature. You want to give somebody, you know, a little more time. They're always mitigating factors. I think when you're in hyper growth, you have to be respectful of the individual, but sometimes you don't have the right person in the right role. So if you don't have the right position for that person, it's time to separate and find the right person for that role. Because the opportunity cost of not having a killer in a particular role is significant. I mean, everybody knows the mantra, A players hire A players, B players hire C players. You can't do that. If you're moving as fast as you can, it's not just the C suite executives that are making it happen. It's the entire broader exec team. So you need to have great people throughout the organization.

AI assessment note: “the biggest mistake that boards and CEOs can make is waiting too long sometimes”

Q we move into the quickfire, Woody, and it's the element of board roles. According to my, uh, stalking, uh, you've sat on countless boards and done over three and a half thousand hours in the board seat, rough mats, but with that incredible experience in mind, how have you seen yourself evolve over time as a board member, and, and kind of, have there been inflection points in your development?

A No, I think it's, you know, I'm not sure if there's any inflection point, or it was just, you know, uh, Something that was just beaten into my psyche over time. I think what I've tried to learn how to do is be a little bit more patient. As I said earlier, there is a learning process. CEOs and management teams are going to make mistakes, and they need to make mistakes, and then they need to figure out how to course correct. Frankly, for us, and as a board member, the thing is, you're not operating, and at some level, how can you be helpful, and otherwise, how do you get out of the way? So how do you help them, them being a CEO and management teams, and How do you help them make better, quicker decisions based on your experience? That experience is your personal experience or the 200 companies, for example, that TCV is invested in over time. I had one CEO that I had been reviewing him and giving him a, you know, my perspective on how things have been going. And then I said, Hey, how are we doing? Like, what do I do well or not do well? And one of his comments, which I really think it was an insightful one was you guys help me see what great looks like. And sometimes, and especially when you don't invest in just Silicon Valley, you forget that sometimes people don't have a perspective outside of the business that they've been building for five or 10 years. So how do you give someo…

AI assessment note: “I think what I've tried to learn how to do is be a little bit more patient.”

Q They're all flat. There were no big buyers in the books. No one was stepping up going, oh, I'm excited. I want to buy 10%. It was widely distributed amongst the institutional buyers, and then performance post has been lackluster. Do you think that's fair?

A I don't. I don't. Look, when you have small offerings like that, Small changes in volume can have, you know, massive impacts. What's happened since all those guys went public? You had the Fed comments. I think the 10 years now over four and a half percent. I think a lot of it's macro. I guarantee you, and I'm not a trader or anything, but I guarantee you that the short interest is probably off the charts on every one of those. So I wouldn't say at all that the stock performance is indicative of the underlying companies. But as much about trading volumes and, and, and how, how, uh, uh, certain people are approaching them, you know, those opportunities, small float, you're going to have a, you're going to have lockup releases in the future. Well, it's a short against the, you know, against those, uh, those distributions in the future. So I understand, um, the, the, the, the comment have to start somewhere. And I personally think, you know, let's see how the companies report. I would, Expect that the companies will have been thoughtful about this and then, and, and, and they will, you know, continue to report solid numbers. But the, but the fundamentals again is valuation is only determined by your performance and, and going public in a market like this, you're betting on your, you're betting on yourself. Yeah. Be great when there's more volume. Um, and, and more liquidity, but I …

AI assessment note: “I don't. I don't. Look, when you have small offerings like that”

Q down or marking down portfolios really across the board, 50 to 60% in some cases, if we want to be direct. That's not in their interests often with LPs who they want to go and fundraise from in the next quarter or two quarters or three quarters. And we've seen delays in VCs marking down their books. Is there an incentive misalignment in the resetting of valuations in that respect?

A Yeah. I mean, that is, that is an issue, right? That is an issue. And if you talk to, uh, LPs, there are many of them that are, that are waiting. You can have many different investors in the, in the same company, you know, holding, holding a particular security or a particular company at different, different prices. It's definitely an issue. I mean, but, but fundamentally, Again, you want everybody to try to get to, you know, the, the point of this is a fair price because, you know, the decision issues that Devin talked about until you're all on the same side of the table, somebody may be, be, be, uh, fighting for something that is not the right optimal outcome, but it's the right thing for them in an, in the short term. And that's a bad thing over the, over the longterm. So I think LPs are trying to get smarter. I think anybody, you know, I mean, if you're a firm as big as mine or as Devon's, there's a very sophisticated process that gets reviewed by auditors, which is a little different than, you know, with a lot of the early stage guys, so it's hard for us to, to play around with valuation, and I just think that needs to flow through to, you know, everybody in the, you know, in the investor community, or you have all of these different opinions, That have different motivations, um, you know, given their valuation discrepancies.

AI assessment note: “Yeah. I mean, that is, that is an issue, right?”

Q They're all flat. There were no big buyers in the books. No one was stepping up going, oh, I'm excited. I want to buy 10%. It was widely distributed amongst the institutional buyers, and then performance post has been lackluster. Do you think that's fair?

A I don't. I don't. Look, when you have small offerings like that, Small changes in volume can have, you know, massive impacts. What's happened since all those guys went public? You had the Fed comments. I think the 10 years now over four and a half percent. I think a lot of it's macro. I guarantee you, and I'm not a trader or anything, but I guarantee you that the short interest is probably off the charts on every one of those. So I wouldn't say at all that the stock performance is indicative of the underlying companies. But as much about trading volumes and, and, and how, how, uh, uh, certain people are approaching them, you know, those opportunities, small float, you're going to have a, you're going to have lockup releases in the future. Well, it's a short against the, you know, against those, uh, those distributions in the future. So I understand, um, the, the, the, the comment have to start somewhere. And I personally think, you know, let's see how the companies report. I would, Expect that the companies will have been thoughtful about this and then, and, and, and they will, you know, continue to report solid numbers. But the, but the fundamentals again is valuation is only determined by your performance and, and going public in a market like this, you're betting on your, you're betting on yourself. Yeah. Be great when there's more volume. Um, and, and more liquidity, but I …

AI assessment note: “I don't. I don't. Look, when you have small offerings like that”

Q the point that you intersect, often kind of slightly later stages than the very early kind of foundations of finding product market fit. How does one look to really actively add value at the stage that you do? I spoke to Shaq, and he talked about the immense value that you've provided to Spotify. How do you look to add value at this stage and with this very global mindset?

A You know, everybody talks about pattern recognition, and for the early stage guys, pattern recognition is about nailing product market fit. It's about putting together those early stage teams that can really grok together and take nothing and create something. You know, on the growth side, we just do that same thing, but we do it at a later scale. A startup team is not necessarily the team that's going to take you to billions of dollars of revenue. A startup has an initial market that you go after. Maybe it's geographical. As you scale, you have to be global. So one of the benefits that we have is after 23 years of investing where we've made over 200 portfolio company investments, we've seen a lot. Some companies have done really well. Others have struggled. And for us, what we're trying to help companies do is make better decisions faster.

AI assessment note: “what we're trying to help companies do is make better decisions faster.”

Q Have you personally experienced this kind of extended hold period with the investing that you've done over the last few years, given the kind of macro prevailing wins?

A You know, for us, the extended hold period is typically by design, so the C in TCV is crossover, and what that means is just because a company goes public doesn't mean that we're going to rush to the door and look for liquidity. There's a lot that's been written and spoken about Many early stage venture firms and certainly the seed stage venture firms that will look for liquidity because their job is done by the time that, you know, they get to, you know, the public markets. And in many cases, that's exactly true with us. A lot of times we will underwrite an investment understanding that maybe half or more of the hold period could be as a public company. And as such, as long as the things that we got excited about with a company growth position, et cetera, are still in effect, We will hold, you know, most of our public positions or many of our public positions for a long period of time.

AI assessment note: “for us, the extended hold period is typically by design”

Q From the many board meetings, who would you say kind of exemplifies this best from your memory?

A Again, this happens every day. You know, I'll mention Daniel Ek just because it's one that's top of mind for me, but, you know, his clarity of vision, the long game focus, I think is impressive, and we don't spend time talking about, you know, just the here and now. It's where are we going. It's the same as Miriam Nafisi admitted talking about the The ecosystem and the collection of designers that she has, you know, it's not focusing on what's happening today, but what you can do and how are you empowering and changing the lives of different participants that are helping drive your business. Daniel, I'm talking about artists as well as consumers. You know, this happens all the time. It's what are the opportunities that your customer is going to allow you to do again, clarity of vision, focusing on the long game. Most of our CEOs do that really, really well.

AI assessment note: “I'll mention Daniel Ek just because it's one that's top of mind for me”

Q Do you find the market fundamentally more competitive given the rise of these mega raisings?

A I don't know if it's just the mega raisings. There's just more players, and if you look in technology in general, you have mega funds, you have the crossover funds, you'll have some of the earlier stage venture funds that have raised growth funds, you have the how many different seed funds and Super seed funds and angel funds, so whether you're at the early stage in venture or you're even at the late stage crossover side, there's just more capital that's come in. That's, that's obviously competitive, and I'd rather that all of those competitors not be there, but for the way that we look at it is, it just causes us to focus on the domain expertise that we built over an almost 25 year period, and try to make better, more informed decisions, and then also try to help affect better outcomes based on the model that we have. But if you don't have a team that can execute, you're not going to reach your ultimate potential. There are some, by the way, that have said, I want to invest in a business that's so big that, you know, a management team can't get in the way of its success. I totally get that. That's just not the way that I look at it, or I think the way that TCV looks at it, which is we're backing not only the horse, but we are backing the jockey.

AI assessment note: “I don't know if it's just the mega raisings. There's just more players”

Q absolutely. I mean, speaking of kind of getting the right people around you there, we had Eli Gill on the show, and he said the very best CEOs have the ability to hire the very best, as you mentioned there. Thinking back over your portfolio, can you tell me a story of, of this happening, how it played out, and maybe what impressed you so much about the CEO's approach?

A But, you know, by the way, it's a story that plays out over and over and over again every day, you know, whether it's talking about Daniel at Spotify hiring his full management team, including Barry McCarthy as CFO, and Barry's the former longtime CFO at Netflix, probably no more relevant executive. That's a perfect case in point. Whether it was Michael Dubin at Dollar Shave Club putting a great team together that was a combination of people, first time in the roles, and then seasoned executives from particular, you know, areas, or Miriam Nafasi doing the exact same thing at Minted. You know, the thing I think at TCV we're most proud of is the strength of the management teams that we have, and all of that comes from the ability of a CEO to clearly articulate a vision, show the passion that Be successful at creating a culture that people want to join. I mean, look, you talked about how things have changed. The competition for talent, and whether you're talking about the Bay Area or any other market, the competition for talent is like it's never been before. You have to nail it. People don't just want to come to a company because they think they're going to make some money. They want to come because they believe in what they're doing. They want to be respected. They want to be in a culture that they're excited about. That all comes from the CEO.

AI assessment note: “Daniel at Spotify hiring his full management team, including Barry McCarthy as CFO”

Q Can I ask, when do you have to ensure that that actually works? We see a lot of companies today who are very much post-hypergrowth, where the unit economics maybe look more sketchy. How do you think about that moment when unit economics must come front and center and margin is at the forefront?

A Well, obviously different types of margin, right? You can talk gross margin, contribution margin, net income margin. With us at TCV, we're looking for commercial acceptance. So we're not taking the risk of whether there's a market or the answer in the question, will the dogs eat the dog food? We want to believe, and we would like to believe that that core economic unit, whether it's gross margin, but most likely it's contribution margin works, does not mean that you have to be profitable because you can constantly forward invest in a business. And again, that's where you get into the concept of what's the long-term value of a customer. And, you know, many customer paybacks happen over a longer period of time than Immediate. Sometimes they're six months. Sometimes they're 18 months. But if you have this durable relationship with customers, and it's something we see a lot having invested in many subscription businesses, and if the economics works, you'd be crazy not to front end load as much of the customer acquisition as you can. You know, there's sometimes, like, we look back at companies and say, God, we should have spent twice as much on customer acquisition because customer acquisition was remarkably efficient in the early days, and over time, it gets more and more competitive.

AI assessment note: “With us at TCV, we're looking for commercial acceptance.”

Q we move into the quickfire, Woody, and it's the element of board roles. According to my, uh, stalking, uh, you've sat on countless boards and done over three and a half thousand hours in the board seat, rough mats, but with that incredible experience in mind, how have you seen yourself evolve over time as a board member, and, and kind of, have there been inflection points in your development?

A No, I think it's, you know, I'm not sure if there's any inflection point, or it was just, you know, uh, Something that was just beaten into my psyche over time. I think what I've tried to learn how to do is be a little bit more patient. As I said earlier, there is a learning process. CEOs and management teams are going to make mistakes, and they need to make mistakes, and then they need to figure out how to course correct. Frankly, for us, and as a board member, the thing is, you're not operating, and at some level, how can you be helpful, and otherwise, how do you get out of the way? So how do you help them, them being a CEO and management teams, and How do you help them make better, quicker decisions based on your experience? That experience is your personal experience or the 200 companies, for example, that TCV is invested in over time. I had one CEO that I had been reviewing him and giving him a, you know, my perspective on how things have been going. And then I said, Hey, how are we doing? Like, what do I do well or not do well? And one of his comments, which I really think it was an insightful one was you guys help me see what great looks like. And sometimes, and especially when you don't invest in just Silicon Valley, you forget that sometimes people don't have a perspective outside of the business that they've been building for five or 10 years. So how do you give someo…

AI assessment note: “what I've tried to learn how to do is be a little bit more patient.”

Q down or marking down portfolios really across the board, 50 to 60% in some cases, if we want to be direct. That's not in their interests often with LPs who they want to go and fundraise from in the next quarter or two quarters or three quarters. And we've seen delays in VCs marking down their books. Is there an incentive misalignment in the resetting of valuations in that respect?

A Yeah. I mean, that is, that is an issue, right? That is an issue. And if you talk to, uh, LPs, there are many of them that are, that are waiting. You can have many different investors in the, in the same company, you know, holding, holding a particular security or a particular company at different, different prices. It's definitely an issue. I mean, but, but fundamentally, Again, you want everybody to try to get to, you know, the, the point of this is a fair price because, you know, the decision issues that Devin talked about until you're all on the same side of the table, somebody may be, be, be, uh, fighting for something that is not the right optimal outcome, but it's the right thing for them in an, in the short term. And that's a bad thing over the, over the longterm. So I think LPs are trying to get smarter. I think anybody, you know, I mean, if you're a firm as big as mine or as Devon's, there's a very sophisticated process that gets reviewed by auditors, which is a little different than, you know, with a lot of the early stage guys, so it's hard for us to, to play around with valuation, and I just think that needs to flow through to, you know, everybody in the, you know, in the investor community, or you have all of these different opinions, That have different motivations, um, you know, given their valuation discrepancies.

AI assessment note: “Yeah. I mean, that is, that is an issue, right?”

Q Do you find the market fundamentally more competitive given the rise of these mega raisings?

A I don't know if it's just the mega raisings. There's just more players, and if you look in technology in general, you have mega funds, you have the crossover funds, you'll have some of the earlier stage venture funds that have raised growth funds, you have the how many different seed funds and Super seed funds and angel funds, so whether you're at the early stage in venture or you're even at the late stage crossover side, there's just more capital that's come in. That's, that's obviously competitive, and I'd rather that all of those competitors not be there, but for the way that we look at it is, it just causes us to focus on the domain expertise that we built over an almost 25 year period, and try to make better, more informed decisions, and then also try to help affect better outcomes based on the model that we have. But if you don't have a team that can execute, you're not going to reach your ultimate potential. There are some, by the way, that have said, I want to invest in a business that's so big that, you know, a management team can't get in the way of its success. I totally get that. That's just not the way that I look at it, or I think the way that TCV looks at it, which is we're backing not only the horse, but we are backing the jockey.

AI assessment note: “That's, that's obviously competitive, and I'd rather that all of those competitors not be there”

Q Can I ask, when do you have to ensure that that actually works? We see a lot of companies today who are very much post-hypergrowth, where the unit economics maybe look more sketchy. How do you think about that moment when unit economics must come front and center and margin is at the forefront?

A Well, obviously different types of margin, right? You can talk gross margin, contribution margin, net income margin. With us at TCV, we're looking for commercial acceptance. So we're not taking the risk of whether there's a market or the answer in the question, will the dogs eat the dog food? We want to believe, and we would like to believe that that core economic unit, whether it's gross margin, but most likely it's contribution margin works, does not mean that you have to be profitable because you can constantly forward invest in a business. And again, that's where you get into the concept of what's the long-term value of a customer. And, you know, many customer paybacks happen over a longer period of time than Immediate. Sometimes they're six months. Sometimes they're 18 months. But if you have this durable relationship with customers, and it's something we see a lot having invested in many subscription businesses, and if the economics works, you'd be crazy not to front end load as much of the customer acquisition as you can. You know, there's sometimes, like, we look back at companies and say, God, we should have spent twice as much on customer acquisition because customer acquisition was remarkably efficient in the early days, and over time, it gets more and more competitive.

AI assessment note: “With us at TCV, we're looking for commercial acceptance.”

Q absolutely. I mean, speaking of kind of getting the right people around you there, we had Eli Gill on the show, and he said the very best CEOs have the ability to hire the very best, as you mentioned there. Thinking back over your portfolio, can you tell me a story of, of this happening, how it played out, and maybe what impressed you so much about the CEO's approach?

A But, you know, by the way, it's a story that plays out over and over and over again every day, you know, whether it's talking about Daniel at Spotify hiring his full management team, including Barry McCarthy as CFO, and Barry's the former longtime CFO at Netflix, probably no more relevant executive. That's a perfect case in point. Whether it was Michael Dubin at Dollar Shave Club putting a great team together that was a combination of people, first time in the roles, and then seasoned executives from particular, you know, areas, or Miriam Nafasi doing the exact same thing at Minted. You know, the thing I think at TCV we're most proud of is the strength of the management teams that we have, and all of that comes from the ability of a CEO to clearly articulate a vision, show the passion that Be successful at creating a culture that people want to join. I mean, look, you talked about how things have changed. The competition for talent, and whether you're talking about the Bay Area or any other market, the competition for talent is like it's never been before. You have to nail it. People don't just want to come to a company because they think they're going to make some money. They want to come because they believe in what they're doing. They want to be respected. They want to be in a culture that they're excited about. That all comes from the CEO.

AI assessment note: “Daniel at Spotify hiring his full management team, including Barry McCarthy as CFO”

Q Rudy, you said, you said ignore the noise. One thing I do have to ask is, late stage market is pretty frothy for AI deals. How do you think about the late stage frothy market for AI deals?

A Well, if you step back, This is a remarkably fundamental trend that's going to have significant, significant impacts. We have not made any, um, AI specific investments, although I would say. 100% of our companies are leveraging AI in lots of different ways, whether it's, you know, how you touch the end customer or how you make some of your processes more efficient. This is the positives and negatives of the business that we're in. There are going to be, you know, We can say it's a frothy market and this is crazy. People are going to lose their money. There are going to be some of the bets that are made today that, you know, we'll all look back on and say, God, we should have known that it was that, you know, it was AI was, you know, at the beginning, why didn't we put our money in there? We could have made, you know, X return. That's not an area that we have, um, made any direct investments in. It is a good reminder that the reason that people get excited about technology is it can have remarkably fundamental impacts on Consumers and businesses alike.

AI assessment note: “We can say it's a frothy market and this is crazy. People are going to lose their money.”